Background Information:Adam Smith was a Scottish political economist and philosopher. He was born on June 5, 1723. Smith was born in Kirkcaldy Fife in Scotland. His Father was also named Adam Smith and he was a lawyer, civil servant, and widower.

Adam Smith

He married Margaret Douglas in 1720 and died two months after Smith was born. He was a Scottish moral philosopher and a pioneer of political economy. His religion was Western Philosophy but his dad had a strong interest in Christianity.

The Father of Economics:Smith is known for The Theory of Moral Sentiments he wrote in 1759, and An Inquiry into the Nature and Causes of the Wealth of Nations. In 1740, he studied social philosophy at Glasgow University and Balliol College. At those colleges, he was one of the first students to benefit from scholarships. In 1751, Smith was appointed professor of logic at Glasgow University, transferring in 1752 to the chair of moral philosophy. In 1759, he published his Theory of Moral Sentiments, to represent some of his Glasgow lectures. This work established Smith's reputation; he was concerned with the explanation of moral approval and disapproval. He puts more emphasis on the general harmony of human motives and activities under a beneficent Providence, in spite of the general theme of the invisible hand promoting the harmony of interests, Smith finds many more occasions for pointing out cases of conflict and of the narrow selfishness of human motives. Smith now began to give more attention to jurisprudence and political economy in his lecture and less to his theories of morals. At the end of 1763, Smith obtained a lucrative post as tutor to the young duke of Buccleuch and resigned his professorship. On returning home to Kirkcaldy, he devoted much of the next ten years to his magnum opus, which appeared in 1776. In 1778, he was appointed to a comfortable post as commissioner of customs in Scotland and went to live with his mother in Edinburgh. He died there on July 17, 1790, after a painful illness. He had apparently devoted a considerable part of his income to numerous secret acts of charity. Shortly before his death Smith had nearly all his manuscripts destroyed. In his last years he seems to have been planning two major treatises, one on the theory and history of law and one on the sciences and arts. The posthumously published Essays on Philosophical Subjects probably contain parts of what would have been the latter treatise.

The Wealth of Nations:While Smith was traveling and tutoring, he began to write a book. In 1776, Smith's book, An Inquiry into the Nature and Causes of the Wealth of Nations, which was more commonly known as The Wealth of Nations was published.

Smith's The Wealth of Nations

The book was about upending the mercantilism system. Mercantilism was the main economic system used during the sixteenth and eighteenth centuries. The system was purposely made to increase a nation's wealth by imposing government regulation concerning all of the nation's commercial interests. At the time, people believed a nation's strength could be maximized by limiting imports and maximizing exports.

In the book, Smith's main thesis was a man's natural to tendency toward self-interest. He argued that by giving everyone freedom to produce and exchange goods as they pleased and by opening all markets, the people's natural self-interest would bring about universal luxury. In addition, Smith believed that there were three elements to bring about universal prosperity. These three elements were enlightened self-interest, a limited government, and a solid currency and a free-market economy.

The Wealth of Nations has become very influential book since it did so much to create the subject of political economy and develop into an autonomous systematic system. In the western world, it is the most influential book published on the subject. The publishing of the book marked the birth of modern capitalism and economics.

Capitalism

Capitalism Emerges:Expanded trade, an increased money supply, and the push for overseas empires spurred the growth of European capitalism, or an economic system in which most businesses are owned privately. Entrepreneurs, or people who take on financial risk to make profits, were key to the success of . Entrepreneurs organized, managed, and assumed the risks of doing business. They hired workers and paid for raw materials, transport, and other costs of production.

As trade increased, entrepreneurs sought to expand into overseas ventures. Capitalists, because of their resources, were more willing to take risks. Thus, the price revolution of the early modern age gave a boost to capitalism. Entrepreneurs and capitalists made up a new business class devoted to the goal of making profits. Together, they helped change local European economies into an international trading system.

Exploring New Business Methods:Early European capitalists discovered new ways to create wealth. From the Arabs, they adapted methods of bookkeeping to show profits and losses from their ventures. During the late Middle Ages, as you have to read, banks increased in importance, allowing wealthy merchants to lend money at interest. Joint stock companies, also developed in late medieval times, grew in importance. They allowed people to pool large amounts of capital needed for overseas ventures. Individuals who invested in these companies could join in any profits that the company made. If the company lost money, individuals would only lose their initial investments.

Bypassing Guilds: The growing demand for goods led merchants to find ways to increase production. Traditionally, guilds controlled the manufacture of goods. But guild masters oftenran small-scale businesses without the capital to produce for large markets. They also had strict rules regulating quality, prices, and working conditions.

Enterprising capitalists devise a way to bypass the guilds called the "putting-out" system. It was first used to produce textiles but later spread to other industries. Under this system, for example, a merchant capitalist distributed raw wool to peasant cottages. Cottagers spun the wool into thread and then wove it into cloth. Merchants bought the wool cloth from the peasants and sent it to the city for finishing and dyeing. Finally, the merchants sold the finished product for a profit. The "putting-out" system, also known by the term "cottage industry," separated capital and labor for the first time. In the 1700s, this system would lead to the capitalist-owned factories of the Industrial Revolution.